‘You can’t be half pregnant’: Why Rothschild is calling time on the public market

For years, Alexandre de Rothschild watched his family wrangle over whether their eponymous investment bank, a byword for secrecy and discretion, should remain a publicly listed company.

Now, the seventh-generation leader of the European banking dynasty has decided to settle the debate once and for all. On Monday, the 42-year-old launched a €3.7bn deal to take the Anglo-French institution private — his highest-stakes move since taking over the bank five years ago.

“You can’t be half pregnant,” de Rothschild told the Financial Times. “It was clear that we had reached the limit and full potential of the listing. Our DNA is much better suited to being a private company.”

“This is partly about Alexandre exercising his leadership,” said Jeremy Sigee, a banks analyst at Exane BNP Paribas. “It’s about Alexandre’s ascendancy and him wanting to make his mark, to put the firm — and the family — on the best footing for the future.”

Standing in his way, however, is a potential battle with minority shareholders who rival bankers say could try to squeeze more money out of the Rothschild clan. And there are questions over where the scion of one the world’s most patrician families will turn to pay for his vision.

“Minority shareholders will have to be convinced to sell out; they may yell that the price is insufficient . . . But if you’re an activist shareholder of sorts or an institution, do you stand in the way of the entire Rothschild family?” said one senior banker in Paris.

Delisting Rothschild & Co would buck a trend among its boutique investment banking peers — such as Evercore, Lazard and PJT Partners — which have all floated in the US and followed in the footsteps of Goldman Sachs’s landmark initial public offering in 1999.

But Rothschild & Co, part of a dynasty started in the Frankfurt Jewish ghetto in the 18th century, never did bear the hallmarks of a typical public company. The institution — which counts French president Emmanuel Macron, British politician Jacob Rees-Mogg, and Wilbur Ross, who is known on Wall Street as the “king of bankruptcy”, among its alumni — was effectively private already in all but annual results.

Non-family company executives say that “the deal doesn’t really change anything”. They point out that the wider family concert — which includes Alexandre’s uncle Édouard de Rothschild and the Maurel family — already owns 54.5 per cent of the firm. It maintains control with two-thirds of the voting rights through a fortress-like structure called a société en commandite par actions (SCA), a special legal status that is a hybrid between a partnership and a limited liability company.

Due to the presence of several long-term investors on its shareholder register who are largely supportive of the family, the effective free float is small and the shares are thinly traded.

Its shares trade at more than half the price to earnings multiple of their US-listed peers and none of the group’s three divisions — global advisory, wealth and asset management, and merchant banking — need to access capital from the public equity markets.

Meanwhile internally, there was growing frustration that its strong operational performance — all three businesses had a record year in 2021 and overall revenues grew 11 per cent year on year in the first nine months of last year — was not adequately reflected in its share price performance. Before Monday’s announcement, Rothschild & Co’s stock was up about 10 per cent over the past 12 months and had gained 25 per cent over the past five years.

In short, the family thought the listing brought Rothschild & Co no real benefits and its leadership saw an inherent contradiction in a public company held captive by quarterly reporting advising clients to think long-term.

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In many ways it was surprising that Rothschild & Co was ever public in the first place. The family’s desire to be master of its own destiny, and its ethos that discretion is the better part of valour, sat awkwardly with the public markets. But its Paris listing owes more to a historical accident than a strategic decision.

Shortly after Alexandre de Rothschild’s father David had taken over the bank from his own father, Guy, in 1982 it was nationalised by Socialist president François Mitterrand. David de Rothschild, an urbane figure renowned in Parisien circles as the consigliere’s consigliere, was forced to start again from scratch and rebuild the bank.

He relaunched his French activities through Paris Orléans, a discontinued French railway company that had been listed on the stock exchange since the 19th century before becoming a holding company for the Rothschilds.

In 2015 the family changed the investment bank’s name from Paris Orléans to Rothschild & Co.

The imminent deal will draw a line under that chapter. Concordia, the Rothschild family holding company that owns 38.9 per cent of the shares and 47.5 per cent of the voting rights, is in talks with banks and investors to finance an offer for the group and squeeze out minority shareholders.

Under the terms of the deal, Concordia will increase its stake in the bank to about 50 to 55 per cent, and 100 or so employee partners will expand their ownership of the business, which is currently at 5 per cent. Rothschild & Co is also tapping its network to bring in several external families as equity investors.

Concordia plans to offer €48 per share, a 19 per cent premium to Friday’s closing price that values the group at €3.7bn. It includes a dividend of €1.4 per share and an exceptional distribution of €8 per share, if Concordia files its offer.

Rival investment bankers pointed out that excluding dividends, Concordia’s offer price is really €38.6, which is below last Friday’s closing price. The bid is “strongly opportunistic, bordering on unfair”, said the founder of a rival investment banking boutique.

Over the past year, Rothschild & Co has traded at an average multiple of 7.1 times earnings, and the offer price is only slightly higher, at 7.6 times analysts’ earnings forecast over the next 12 months, according to Refinitiv.

“Time was not on their side to take this private,” said a Paris-based lawyer. “The price would be much higher in two years’ time when market conditions will probably be better and their wealth management and merchant banking businesses will be more mature.”

People close to Concordia point out that the €48 per share offer price is a premium of 15 per cent compared with Rothschild & Co shares’ all-time high in January 2022.

“The firm has some hidden value that the market didn’t recognise,” said one Rothschild insider. “The market can’t say that it doesn’t recognise that value and then on the other hand say give me that value.”

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The take-private is the latest step in a series of measures by Alexandre de Rothschild and his 80-year-old father before him to clean up Rothschild & Co’s structure.

The family has tried to tighten its ownership of the group and diversify its revenues beyond its core French and British advisory business, in order to help it ride out less buoyant periods in Europe’s mergers and acquisitions market.

Crucially, just over a decade ago the elder de Rothschild orchestrated a merger between the then-separate French bank and UK merchant bank NM Rothschild & Sons, which was run by his late cousin Evelyn de Rothschild. The deal, which was many years in the making, unified its corporate structure under the French parent group and put an end to decades of cross-Channel rivalry. At the time, Evelyn de Rothschild completely sold out of his interests in the family bank, and now only one of his three children remains as a small shareholder through Concordia.

Then in 2018 Rothschild & Co announced it had settled a dispute with Edmond de Rothschild, the Geneva-based private banking and asset management group, over the family name. As part of this, they unwound cross-shareholdings in one another.

The settlement ended an embarrassing public spat and came as David de Rothschild stepped back as chair and passed the reins to his son, a move that had been a decade in the making.

Alexandre de Rothschild’s early experiences of the bank were of visiting its cigar-smoke-filled offices as a child in the 1980s. After stints as an analyst at Bear Stearns and private equity firm Argan Capital, he joined Rothschild & Co in 2008, charged with building up its private equity business with longstanding Rothschild executive Marc-Olivier Laurent.

Mentored by Laurent and his own father, David, and working closely with the management board members — Robert Leitão, François Pérol and Javed Khan — Alexandre de Rothschild’s leadership transition is widely regarded to have been smooth.

The firm’s global advisory division advising on transactions such as mergers and acquisitions still accounts for the majority of revenues.

But Rothschild & Co has been building up its almost €100bn wealth and asset management division to deliver the steady fees increasingly favoured by investors, with the 2016 acquisition of French regional private bank Martin Maurel, and that of private bank Banque Pâris Bertrand in 2021.

Successful fundraising initiatives in 2022 drove merchant banking revenues last year and the bank has been expanding in the US, a market that it has struggled to crack.

Rothschild & Co will announce further details of the deal at its full-year results next week. Crucially, Concordia will need to get hold of 90 per cent of the shares in order to be able to “squeeze out” the rest of the minority shareholders. And as part of the financing, the holding company will borrow money secured against its own stake in the bank.

“It’s a leap of faith for the family,” said the Rothschild insider. “You have to believe in the future of the firm to do that.”